Meadow CreekNews

The Other Glass Ceiling – Entrepreneurial Growth

Filed under Business Management, Small Business, Venture Capital and Start Ups on November 3, 2009

Entrepreneurs face self-imposed limits to their growth based on preconceived notions of their own abilities and confidence in others. These limitations translate into anemic visions of their business potential. I have observed barriers to business vision based on five stages of business development. Each stage is a learning process for the would-be entrepreneur. A different management style accompanies each and stays with the individual throughout their career. Each stage also has its own set of economic dynamics that govern the financial return of the entrepreneur’s efforts. Some skip stages and accelerate quickly, while others are mired in a particular stage and never reach the next level.
Being stuck in any of the stages does not mean that the individual will not enjoy the business experience or in many cases not enjoy financial success. It only means that they will not achieve their full potential. This provides for greater opportunities for those that may ultimately buy the business and move it forward. Understanding the implications of these stages may provide the entrepreneur with greater incentive to take the next step and consultants such as myself the opportunity to help guide the way and enjoy some financial gain as well.

Stage I: The Hobbyist. The would-be entrepreneur has cold feet. Maintaining their day job, they flirt with their entrepreneurial aspirations. Perhaps compulsively attending social media events, they talk about their business at length, but have not fully committed themselves to making it happen.
There is no particular management style at play in this stage, just an individual with a dream. There is an internal struggle here of balancing all of their practical constraints of supporting themselves and perhaps a family or an expensive lifestyle against the risk inherent in actually starting a business in earnest. This is where most small businesses die a slow and agonizing death. Little has been invested, but much is lost in the fleeting entrepreneurial aspirations of the people that will always ask themselves, “what if?”

Stage II: Self Employed. The Hobbyist has crossed the Rubicon. Now fully committed to making a go of their business, the day job is gone and their livelihood is dependent upon the success of the venture. Belief in themselves and self-motivation got them across the threshold and will dominate the management style at this stage.
Everything that happens good or bad to the business is theirs to own. They make all of the decisions and do all of the work. Most successful entrepreneurs get through this stage with near obsessive-compulsive behavior towards their work. Long hours six or seven days a week to make it happen and get the venture from cash drain to profitability and stability. Survival instinct drives the Self-Employed until the venture is providing for their needs.
Financially, they are severely limited, particularly those in personal services. Financial return is a strict relationship between price and the hours they can bill-out. Even in product-based businesses, the Self-Employed are constrained by the number of potential clients they can find and convert to customers while still managing the affairs of their business.

Stage III: The Entrepreneur. The Entrepreneur has fully committed to the business and has made the first steps towards leveraging themselves through employees or other commitments to suppliers or through alliances. At this stage, the venture truly becomes a business with the introduction of a more financially dynamic enterprise transcending the simple equations of dollars per hour.
The self-motivation and belief that got the Entrepreneur past the Self-Employed stage is still at work. A new management skill is now learned and that is instruction. The entrepreneur will typically hire people to do very specific tasks and direct their every move. They are still feeling the survival instinct and not prone to fully delegate or empower employees. The successful entrepreneur will learn how to view and describe their business process and communicate it effectively to their employees.
This can be a very inefficient stage financially as the human assets they employ are under–utilized and their management time is disproportionate to the financial advantage gained. At this stage, a multiple-employee business is still a one-person show. In my experience, most businesses hit the glass ceiling at being Self-Employed.

Stage IV: The Small Business Owner. In Stage IV, the Entrepreneur has relinquished full control of the business and has added a layer of management or supervisors to their organization. The survival instinct is no longer a primary motivating factor. Growth is the primary motivation and the Small Business Owner is utilizing management skills to run an organization.
This stage is difficult for the Small Business Owner. It is the first time they will effectively cede control of their business to others. Typically, this stage is the most awkward from both a management and financial standpoint early in the cycle. The former entrepreneur still clings to control over the business. The management team enjoys senior level positions and commensurate pay, but little authority. They are implementers for the Small Business Owner and simply relieve the Owner of direct supervision of a growing organization.
I have seen Small Business Owners pay six-figure salaries to managers they give no authority to and still roam the shop floor making sure everyone is doing their job. This is another stage that many businesses will never break through. A Small Business Owner unable to relinquish control will be hamstrung by the cost of a management team that is never fully utilized losing the potential financial advantage of an organizational structure.

Stage V: Organizational Leadership. This is truly the break through stage of any business. Ownership has taken on a strategic role in guiding the organization’s future and management is empowered to both contribute to strategic decision making as well as implement strategy. Attainment of the leadership stage usually has a cascading effect on the style of successive layers of the organization. Full utilization of individuals’ ability to contribute provides for the greatest productivity of the organization and financial return.
Many large corporations never reach this level. I have seen corporate officers with compensation in seven figures unable to make decisions of minor consequence relative to their total responsibility without running it past the CEO. Either the CEO has done a poor job in hiring or has communicated their lack of willingness to respect the authority of their reports no matter what policies they may have stated.
In other cases, I have seen small businesses run as if they were Exxon Mobil. There you see strategically focused CEOs providing leadership to an empowered organization of often less than 50 people. For businesses large or small, the objective is to have an organization that is fully utilized in order to maximize financial return and the full potential of the business. Too many startups hit a glass ceiling due to the owner’s inability to let go.
Achieving the proverbial “next level” is usually far easier than the owner thinks. It is very often a matter of personal growth and transferring the belief in themselves to belief in others. What stage are you stuck in?

Richard Gabel

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